BEFORE THE DISTRICT CONSUMER DISPUTES REDRESSAL FORUM-II, U.T. CHANDIGARH

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Complt.  Case No:734 of 2009

Date of Institution: 21.05.2009

Date of  Decision : 21.09.2010

The Chandigarh State Cooperative Bank Ltd., SCO 1088-89, Sector 22-B, Chandigarh

……Complainant

V E R S U S

The New India Assurance Company Ltd., Sector 17-B, Chandigarh, through its Manager.

.…..Opposite Party

CORAM:          SH.LAKSHMAN SHARMA                            PRESIDENT

                    SH.ASHOK RAJ BHANDARI                         MEMBER

                    MRS.MADHU MUTNEJA                           MEMBER

PRESENT:      Sh.Naginder Singh, Adv. for the complainant

Sh.Navin Kapur, Adv. for the OP

PER MADHU MUTNEJA, MEMBER

                    This complaint has been filed by the Chandigarh State Cooperative Bank Ltd., Chandigarh, against the New India Assurance Company Ltd., alleging deficiency in service due to non-settlement of insurance claim by the OP.

1]                 A perusal of the facts of the case is as under:-

                    The Chandigarh State Cooperative Bank Ltd. (hereafter referred to as Complainant) is a cooperative society registered under the Punjab Cooperative Societies Act, 1961, which is applicable to Union Territory of Chandigarh.  The bank had got itself insured from the OPs under the Banker’s Indemnity Policy.  The cover note is placed at Ann.C-1 and the policy document is at Ann.C-2. 

                    On 23.9.2003 a surprise check was conducted in the Mouli Jagran Branch of the Complainant by the General Manager of the Bank.  It was discovered that the then Branch Manager had sanctioned some fictitious loans in the name of some unreal persons. The total amount alleged to be thus sanctioned was Rs.9,89,000/-.  On investigation, It was found that the Branch Manager had connived with certain persons and had issued/sanctioned fictitious loans against NSCs (National Saving Certificates) and FDRs (Fixed Deposit Receipts).  Actually no such documents existed in the records of the bank. 

                    The ‘culprit’ Branch Manager wrote a letter to the Managing Director of the complainant bank that he undertook the responsibility to recover the entire loan amount sanctioned by him.  However, in fact only Rs.20,000/- was received from him. 

                    The General Manager then informed the I.G.Police, Chandigarh to lodge an FIR in the fictitious loan scam detected in the Mouli Jagran Branch of the Bank.  The case was transferred to SSP, Chandigarh.  After preliminary investigations by the DSP of the Economic Offence Wing, Sector 17, Chandigarh an FIR No.279 was lodged against the Branch Manager on 21.11.2003.  A copy of the FIR under Section 409, 420, 467, 468, 471, 120-B of IPC and Section 13(1)(d) of Prevention of Corruption Act is placed at Ann.C-5.  It is clearly stated in the FIR that it is a clear cut case of fraud, cheating, breach of trust and embezzlement.  The names of the loanees have also been mentioned with the amount of loan. 

                    The total amount involved in the fictitious loan scam was Rs.9,89,000/-.  The Complainant Bank vide letter dated 17.5.2005 placed at Ann.C-6 intimated the OP about the fraud detected in their Mouli Jagran Branch of the Bank.  When nothing was heard from the OP, a reminder was issued on 15.2.2006 with a request to indemnify the claim.  Thereafter a Surveyor Sh.C.K.Jain was appointed by the Insurance Company (OP) to assess the claim.  Investigations were initiated against all those persons involved in the scam to recover the public money.  A copy of the FIR was supplied to him.  A detailed letter showing complete facts of the incident (Ann.C-8) and FIR was provided to the Surveyor.  It was also mentioned that the culprit employee had been dismissed from Service on 20.1.2006 and proceedings against him were pending in the court of Addl. District & Sessions Judge, Chandigarh. The OP’s have not yet made payment of the claim.  They have thus filed this complaint to substantiate their claim under the Banker’s Indemnity Policy issued to the complainant and have demanded an amount of Rs.9,89,000/- along with compensation from the OP.   

2]                 After admission of the complaint, notice was sent to the OP. 

                    In the reply filed by OP, they have taken a preliminary objection that there was no deficiency in service on their part.  On merits, it is submitted that Banker’s Indemnity Insurance Policy No.350306/46/03/62/00000058 effective from 19.5.2003 to 18.5.2004 was issued by OP No.2 in the name of the Chandigarh State Co-op. Bank Ltd., SCO 1088-89, Sector 22-B, Chandigarh.  A copy of the insurance policy is placed on record at Ann.R-1.   They submit that the claim is not payable as the complainant has violated the terms & conditions of the policy.  When the alleged scam was detected, intimation was given to the Police only after 23 days.  Further, even though the fraud was detected on 30.9.2003, the complainant informed the OP for the first time on 17.5.2005 i.e. after a lapse of more than 1½ years.  The reason for the delay is not mentioned anywhere. Also the complainant has made no efforts to recover the defrauded amount from the erring employee and has chosen to file a claim with the OP under Insurance Policy.  A case is already pending against the Branch Manager under Section 409, 420, 467, 468, 471, 120-B of IPC and Section 13(1)(d) of Prevention of Corruption Act.

                    The complainant should have joined the investigations after filing the FIR, but actually they have not taken any steps to assist either the police or the insurance company to recover the amount.  Time being the essence of the contract, the genuineness of the loss cannot be determined due to the delay.  The OP has also submitted that a Surveyor was appointed for the claim. He has given his report (Ann.R-3) wherein the claim amount is assessed as Rs.4,30,250/-.  But the claim of the bank was rightly repudiated as ‘No Claim’ because of the delay and non-joining of the investigation by the OP. In view of the above submissions, they have prayed for dismissal of the complaint.     

3]                 We have heard the ld.Counsel for the complainant and ld.Counsel for OP and have also perused the evidence and documents placed on record by the parties. 

4]                 Here is a case where a fraud has been committed in the bank by one of its own employee.  Fictitious loans/FDRs have been issued to real/unreal persons.  The details of all fictitious documents were given to the police and the police took over all the records of the bank.  Therefore, when the bank approached the OPs to indemnify the loss, the OPs not only protested that the claim was filed too late (after over 1½ years) but they also protested that all evidence, if any, which could have been collected by them was not possible at that belated stage.  This contention by them is definitely justified.  Even though there is no bar to the filing of the consumer complaint and the limitation period is 2 years from the date of cause of action, but valuable evidence might have been lost in the intervening period.  

5]                 The complainant bank has placed on record an affidavit dated 24.9.2009 filed by Capt.P.S.Shergill, Managing Director of the Chandigarh State Cooperative Bank Ltd., Chandigarh, in response to the reply filed by the OPs. The Para No.7 of this affidavit reads as under:-

“The surveyor has from no where deducted the amount to the tune of Rs.2,68,750/- against each and every loan in the name of “EXCESS APPLICABLE AS PER POLICY”.

It is again reiterated that right now NSC’s and FDR’s are the case property of the police case pending in the District Court and cannot be claimed by the complainant bank till the disposal of the case.  More over the complainant bank is not having a single NSC or FDR with it and as earlier submitted that public money is involved in the present case.  So the respondent may pay the recoverable amount now and later on the respondent can encash the NSC’s and FDR’s (if any) lying with the police, after the disposal of the case before the District Court.”

6]                 It is also submitted by the complainant that the NSCs and FDRs are case property of the police.  The case is pending in the District Court and the documents cannot be claimed by the complainant till the final disposal of the case.  The complainant does not have a single NSC or FDR with it. 

7]                 A further detailed submission was presented by the ld.Counsel for the complainant at the time of arguments showing the complete detail of the defrauded amounts credited to different accounts. It is also mentioned in this statement that there is no FDR/NSC in the Bank records.  Only against one name of Smt.Sunita Rani, it is mentioned that the loan has been given against NSC worth Rs.75,000/- but again these NSCs are also not pledged in favour of the complainant.  After deduction of Rs.20,000/- already recovered from the fraudulent employee, the total amount recoverable under Banker’s Indemnity Insurance Policy is Rs.,9,69,000/-.

8]                The ld.Counsel for the OP has made a contention that above the details of loans given at the time of arguments is not on affidavit and hence should not be accepted. 

                    In this regard the Hon’ble Supreme Court of India in Sunderbhai Ambala Desai Vs. State of Gujarat, (2002) 10 SCC 283 has held that “…If required, the court may direct that such articles be handed back to the investigating officer for further investigation and identification.  However, in no set of circumstances the investigating officer should keep such articles in custody for a longer period for the purposes of investigation and identification………..It is of no use to keep such seized vehicles at the police stations for a long period.  It is for the Magistrate to pass appropriate orders immediately by taking appropriate bond and guarantee as well as security for return of the said vehicles, if required at any point of time.  This can be done pending hearing of applications for return of such vehicles.”

9]                 Taking in view the above decision of the Apex Court, it would be appropriate not to decide the case till all documents are got released by the complainant from the police/civil court.

                    Again in New India Assurance Company Ltd. Vs. Hiralal Ramesh Chand, (2008) 10 SCC 626, it was held in the head note : “Consumer Protection – Consumer Forum – Jurisdiction and power – alternative remedy of Civil Suit – When more appropriate – matter requiring detailed examination of the terms of Contract (Marine Insurance Policy) and obligations undertaken – held, in such a case, the matter is more appropriately dealt with by the Civil Court. 1986 S.3, 11, 17 & 21.”

10]               Relying on this judgment of Hon’ble Supreme Court of India, it is once again reiterated that the OPs would not be in a position to assess the loss to the complainant unless the documents lying with the police authorities/civil court are released.

11]               It needs to be verified whether the recipients of the loan were all fictitious or some are genuine.  In this regard reference may be made to the decision of Hon’ble Supreme Court of India in case of Amravati District Central Cooperative Bank Limited Vs. United India Fire and General Insurance Company Limited, (2010) 5 Supreme Court Cases 294 wherein it has been held:-

"The insurance policy between the insurer and the insured represents a contract between the parties. Since the insurer undertakes to compensate the loss suffered by the insured on account of risks covered by the insurance policy, the terms of the agreement have to be strictly construed to determine the extent of liability of the insurer. The insured cannot claim anything more than what is covered by the insurance policy. That being so, the insured has also to act strictly in accordance with the statutory limitations or terms of the policy expressly set out therein. …In other words it limits the liability of the insurer in regard to each claim, only to the amount of loss, in excess of the sum specified in the Excess clause, which the insured has agreed to bear (either himself or by securing other insurance coverage). ..The employee committed several acts of fraud and defalcation and each such separate act caused loss and gave distinct and separate cause of action to the Bank. It is true that all these acts of defalcation were discovered only on October 18, 1972 but the fact of discovery on one day would not enable the Bank to claim that several acts of defalcation constitute one single or composite loss”

12]               A perusal of the complainant’s record shows that a fraud has been played in the bank. The exact calculations of the fictitious loans scam can only be made once all documents lying with the police authorities/civil court are released.  Further, the criminal proceedings are pending against the Branch Manager under Section 409, 420, 467, 468, 471, 120-B of IPC and Section 13(1)(d) of Prevention of Corruption Act.

13]               Only when these criminal cases are decided, the loss suffered by the complainant would be determined.  The civil court may give a direction to the erring employee to make good the loss suffered by the complainant.  Also the falsity/genuineness of each loan would be verified by the civil court. 

                    Reliance should be placed here on the judgment of Hon’ble Supreme Court of India in Trai Foods Ltd. Vs. National Insurance Co., (2004) 13 SCC 656 : Jurisdiction of Consumer Forum (National Commission in this case) – Exercise of discretion to refer the complainant to civil court for appropriate relief – Relevant factors to be considered prior to – Held, quantity of claim, nature of evidence required in respect of claim and damages suffered, and nature of legal issues should be considered – Further held, consumer forums have been set up to grant speedy remedy and are not meant to duplicate the civil courts, and subject the litigants to delays – National Commission refusing to entertain the claim in question (insurance claim relating to damages suffered due to earthquake) on the ground that the controversy could not be resolved in a summary manner without recording elaborate evidence – Considering the records, held, though reason given by Commission for referring the present matter to the civil court was cryptic, the said decision was proper – Consumer Protection – Consumer Protection Act, 1986, Ss.21, 11 and 17.”

14]               In view of the above, it is too pre-mature at this stage to adjudicate upon this case and decide the amount of insurance claim due from the OPs to the complainant.  The OPs are liable to indemnity the complainant for the loss, but the payment for the loss suffered can only be made when the exact amount of loss is determined/assessed and this would be assessed only after the adjudication of the case pending before the court of ld.Addl.Sessions Judge, Chandigarh and on release of all documents from the police authorities.  Once the assessment of the exact loss is made, the complainant can approach the OPs to make payment of the claim, and only if the OPs refused to indemnify the assessed loss to the complainant, then a case under the Consumer Protection Act would lie against them.  

15]               In view of the above observations, this complaint is dismissed being pre-mature at this stage.  The complainant may approach this Forum at a later stage on the same cause of action after decision of all the above mentioned other cases if the OPs still fail to honour their commitment. 

                    Certified copies of the order be supplied to the parties free of any charge. The file be consigned to the record room after compliance.          

Announced

21^st Sept., 2010                                                           

(LAKSHMAN SHARMA)

PRESIDENT

                                       (ASHOK RAJ BHANDARI)

MEMBER

                                                    (MADHU MUTNEJA)

MEMBER

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